Oil prices have come down quite a bit from their 2022 peak. While that has prompted some traders to bet against the commodity, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman has issued a stern warning for the short sellers.
“I keep advising them that they will be ouching — they did ouch in April,” he said at the Qatar Economic Forum in May.
And now OPEC+, which includes the Organization of the Petroleum Exporting Countries and its allies, has reached a deal to extend output cuts into 2024.
Saudi Arabia also would implement an additional voluntary output cut of 1 million barrels of oil per day starting in July.
At a press conference, the energy minister said that the cut could be extended and he would do “whatever is necessary to bring stability to this market.”
If you want to bet on oil prices making a comeback, energy stocks could be worth a look. Here are three that Wall Street finds particularly attractive.
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Exxon Mobil Corp. XOM
Commanding over $400 billion of market capitalization, Exxon Mobil is one of the largest players in the global oil and gas industry.
Shares enjoyed huge rallies in 2021 and 2022 but seem to be taking a break in 2023: Year to date, Exxon stock is down just over 1%.
The business, however, continues to gush profits and cash flow.
According to the latest earnings report, Exxon earned $11.4 billion in profits in the first quarter of 2023. It also generated $16.3 billion of cash flow from operations and $11.4 billion of free cash flow.
The company is returning cash to investors, too. In the first quarter, Exxon paid $3.7 billion in dividends and spent $4.3 billion on share repurchases.
At the current share price, the stock yields 3.4%.
Morgan Stanley analyst Devin McDermott has an Overweight rating on Exxon and a price target of $122, implying a potential upside of 15%.
Devon Energy Corp. DVN
Devon Energy is an independent oil and gas exploration and production company with operations focused onshore in the U.S.
In the first quarter of this year, the company’s oil production reached an all-time high of 320,000 barrels per day.
While oil prices have pulled back from their highs, Devon continues to pump out impressive financials.
In the first quarter, the company’s operating cash flow totaled $1.7 billion. Free cash flow was $665 million.
“With this free cash flow generation, we have been able to return more than $1 billion of capital to shareholders in 2023 through our differentiated dividend policy and the acceleration of our share repurchase program,” Devon CEO Rick Muncrief said in a statement.
The company’s latest quarterly dividend was 72 cents per share, which translates to a generous annual yield of 5.9%. However, note that Devon pays a fixed-plus-variable dividend so the amount could change from one quarter to the next. The most recent payout also included an 11 cents-per-share benefit from divestiture contingency payments received in the quarter.
Stifel analyst Derrick Whitfield has a Buy rating on Devon and a price target of $71 — around 47% above where the stock currently sits.
Occidental Petroleum Corp. OXY
Shares of Occidental Petroleum more than doubled in 2022. The company benefited from elevated oil prices. At the same time, it received more investor attention after Warren Buffett’s Berkshire Hathaway Inc. revealed a sizable stake in it last year.
Last month, it was reported that Berkshire had spent $275 million purchasing another 4.66 million shares of Occidental, boosting its stake in the company to 24.9%.
In the first quarter, the company produced 1.22 million barrels of oil equivalent per day, which exceeded the mid-point of its guidance range.
Buffett isn’t the only one to see potential in the oil giant. Goldman Sachs analyst Neil Mehta has a Buy rating on Occidental and a price target of $77. Because shares currently trade at $59.75, the price target implies a potential upside of 47%.
Keep in mind that because of the volatile nature of commodity prices, even the largest oil companies can experience significant fluctuations in their share prices. If you appreciate the generous shareholder returns offered by the oil sector but aren’t a fan of such volatility, it might be worth exploring reliable dividend opportunities beyond the realm of the stock market.
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